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Frustration defence not available when employer doesn’t accommodate employee

By Malcolm MacKillop and Hendrik Nieuwland


The doctrine of “frustration of contract” holds that if an unforeseen event or circumstance arises that renders the contract fundamentally different in character from what

the parties originally intended, through no fault of either party, the parties will be relieved of their contractual obligations. In the employment context, this could be, for instance, a sickness or disability that arises and renders an employee no longer able to perform his or her job. When this happens, the employment contract is terminated, and in Ontario, the employer is only required to pay the employee his or her minimum entitlements under employment standards legislation. However, as the Ontario Superior Court of Justice has recently cautioned, employers need to be careful before treating a contract as frustrated, especially when an employee could potentially be accommodated in other roles.



In 2010, the Ontario Superior Court of Justice in Duong v. Linamar Corporation confirmed that frustration of contract can occur in the employment context where the employee cannot return to work due to injury or illness. Each case must be decided on its own circumstances, but when this issue arises, the court will consider factors including the term of the contract, how long the employment was likely to last in the absence of illness, the nature of the illness or injury, how long it has lasted and the prospects of recovery. Where the employee is absent from work for an extended period of time without an anticipated return date, the employer will likely be in a position to treat the contract as frustrated.


Inability to perform essential duties

In its 2018 decision in Milloy v. Complex Services Inc., the same Court considered whether frustration of contract occurred when an employee’s injury or illness did not render her incapable of working completely, but rather limited her ability to perform the essential duties of her specific role in the company.

Milloy worked for Complex Services Inc. at its Niagara casino, initially as a hostess and later as a table games dealer. Milloy suffered a work-related repetitive injury to her right shoulder and went on disability leave. After having surgery on her shoulder, her doctor informed her that her injury was permanent and she could no longer work as a table games dealer. The plaintiff returned to work on modified duties and was instructed by her employer to apply for other positions within the casino. Milloy applied for 16 to 22 jobs at the casino, including positions that she had previously held and for which she had received excellent reviews. However, her applications resulted in three interviews and no job offers. Milloy’s employer subsequently released her from her modified duties, claiming that the contract had been frustrated. Milloy brought a claim for wrongful dismissal and the employer tried to rely on the defence of frustration.


Self-induced frustration

Employing the principle that frustration cannot be relied on by an employer where the employer is found to have caused the incident or occurrence leading to the frustrating event, the judge rejected the employer’s frustration defence and found it liable for wrongful dismissal.

Although the plaintiff had an undisputed permanent injury to her shoulder and could not work as a table games dealer, there were many other positions within the company that she applied for and was qualified to perform. The employer failed to provide a convincing reason as to why the plaintiff was not hired for any of the numerous other jobs that she applied for within the casino. Therefore, the frustrating event was seen as the employer’s failure and/or refusal to hire the plaintiff in an alternate position, rather than the plaintiff’s permanent shoulder disability preventing her from working as a table games dealer. The court found that because the employer did not accommodate the employee when it easily could have, the employer had “self-induced” the frustration and, therefore, could not rely on frustration as a defence.


Lessons for employers

When considering whether an employment relationship has been frustrated, employers not only need to consider whether the employee may no longer be able to perform the essential duties of their job, but also whether there is any other form of workplace accommodation that the employer can provide. If the employer is able to accommodate the employee in another position, but fails to do so, it likely will not be able to rely on the defence of frustration if the employee claims wrongful dismissal.

Furthermore, although it was not raised in this case, the Ontario Human Rights Code requires employers to accommodate disabled employees up to the point of undue hardship. If the issues in Milloy had been framed as a human rights violation, as well as a wrongful dismissal, then the possible award could have been much higher, and could have involved an order to reinstate the employee as well as monetary damages. n

Hendrik Nieuwland and Malcolm MacKillop are partners at Shields O’Donnell MacKillop LLP.



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